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MND NewsWire features plain and simple interpretations of industry related data and events written in a manner that maintains the interest of random readers while still catering to the perspective of a housing market professional.

Plenty of people, including Matthew Graham, MortgageNewsDaily's op-ed columnist,
are talking about the practical realities of freezing
a mortgage rate adjustment under the plan President Bush announced last
week. After reflecting I would like to raise some objections of my own and/or
reflect comments from others, about this "solution" to the mortgage mess that
may ultimately be nicknamed Katrina Two.

First of all is the issue of fairness.

The window of opportunity to participate in the rate freeze
is 30 months wide (January 2005 - July 2007) but some of this creative financing
was going on well before that start date. It is likely that few subprime loans
were made after the cutoff date of July 2007 as non-conventional lending pretty
much shut down about that time, but why should someone who took out a 5-year
adjustable hybrid loan on Christmas Eve 2004 be treated any different than the
borrower who waited until the first week of the new year to purchase or refinance
a house?

Likewise, the borrower who has already slipped down the rabbit hole of delinquency
- maybe even as recently as last month - cannot take advantage of the rate freeze.
The President's program may slow the volume of cases entering foreclosure hell,
but those who are already there might as well hand over the keys. It appears
on our reading of the rules that a borrower who is now 30 or 60 days behind
and manages to bring his loan current cannot reset his eligibility for the rate
freeze.

Joe Scarborough of MSNBC raised another fairness issue. What about the homeowners
who bit the bullet in the first place, taking out a conventional mortgage
even though the payments were a stretch rather than getting a reduced fare ride
for one, two, or five years? Some of these conventional loans were ARMs which
will be adjusting as well, although with more modest affects but these borrowers
will get no relief.

The issue of fairness is part of a larger problem. The program is simply not
designed to help very many people and those who will continue to slip through
the cracks will also continue to wreak havoc on their neighborhoods and communities
as homes are left vacant and susceptible to vandalism and property taxes go
unpaid.

Then there are practical issues.

Matt Graham raised one in his column;
an indication that the infrastructure is simply not set up to handle the program.
Anyone who has had to deal with a mortgage servicer over the last five or six
months will tell you that collections and loss
mitigation departments are overwhelmed. Phones are not
answered, messages are not returned, and borrowers looking for a workout or
a short sale are left dangling right through the rap of the auctioneer's gavel.
How these servicers are ever going to handle a potential wave of up to a million
freeze requests is impossible to imagine. Even with "counselors" used as gatekeepers,
approval must still be received from the servicers and this is hard to accomplish
when phones are not answered or emails returned.

The program is voluntary and while supposedly most servicers
and investors have signed on to the program and reports from Wall Street indicate
that the large hedge and pension funds are convinced they will ultimately receive
a greater return by participating than by insisting on enforcing the original
terms of the loans, what about the smaller investor, especially global ones?
It may be pretty hard for a fund in Dubai or, heaven forbid, the government
of China to accept that their expected 9 percent return will not materialize
for five years while that 3 percent teaser rate keeps on ticking. And if these
investors do refuse to participate in the freeze, what of the fairness to the
borrowers with the bad luck to have mortgages sold to a Saudi sheik rather than
to Goldman Sachs?

And what of the paperwork? Certainly those who claim they
cannot afford their new payments will have to prove it. Under current procedure
for workouts or to have a short sale approved borrowers must provide a bucket
of information. A typical list of documents would include recent bank statements,
pay stubs, a hardship letter, two years federal tax returns, and a financial
statement. I have worked with several borrowers seeking short sale approval
and have found that these paperwork requirements, particularly the financial
statement, are above the sophistication level of many and that servicers can
take months to review and approve them. If, in the interim, the rate resets
and the borrower falls behind in his payments does he lose his eligibility for
the program?

Finally, there is already political fallout from the announced program -
lets call it the "dog in the manger" syndrome. Much chatter in the
coffee shop and on talk radio the last few days about rewarding risk takers
and/or deadbeats. Those making the most noise are usually those with 6 percent
fixed rate mortgages and more than enough income to support them but it seems
that many people don't want others to have something they don't
even if the cause is worthy and may ultimately benefit a larger universe than
the recipient.

Perhaps all of the problems I foresee have been anticipated by NEW HOPE Alliance
and procedures are in place to ensure the freeze initiative is seamless. It
would be wonderful if at least one rescue operation out of the White House left
people in their homes rather than sitting on their roofs or totally under water.

Comments

Well Said.
Your words have helped me consider some different aspects of this issue. I had been of the mind that this is a "feel good" campaign rather than a practical one. But to think of HopeNow as gatekeepers makes perfect sense to me, especially after trying to communicate with them. I'm seriously considering that their main purpose in this is to redirect as many as possible to other means before there's a chance to inundate the lenders further.

Larry

on

Rate Freeze : A very bad idea when what is needed and I and ultimately absolutely necessarry is a humongous rate reduction : any where from two to four points below prime would be good. But the Mortgage corps are sooooooo greedy! The bail out is Sooooooo phony ! Who do they think they are kidding ? Once again hand it to our fearless leaders esp King George to hand us something bogus so he can take credit for something being done when nothing of substance is being done . Diminishing Freedom !

Jeff Stern

on

This program does not and will not work? My question which I have not seen answered anywhere is, what happens in 5 years from now? do they still owe on the negative amortizaion portion of the the loan.
I have heard the idea of this program is to "allow the housing market the opportunity to get rid of some of the inventory to allow more peopel to be able to sell down the road" This program will not only NOT do that it would eventually create more properties for sale and drive down the market

Adam

on

This is ridiculous....Larry, the worste thing we could do is lower the rates more. That would just continue the problem just like the rate freeze is going to do. The only shining thing about this so called "solution" is that very few people will qualify. What about the loan brokers who were counting on that adjustable loans to keep them in business? I really have lost faith in our economy. go Ron Paul!

Bronwyn Leeper

on

Great article. This announcement came from the government. That alone raises a red flag for me. Who are they trying to help? The gamers who don't need need it who will jump at the opportunity to take advantage of the system, or the secondary martket-they have to keep the ball rolling somehow? As we all know nothing comes free. So they'll just raise the rates on future loans to make up for it.

uw of the day

on

You have to love the catch phrases for the so called bail out programs "New Hope" and my favorite"Rescue fund" I cant wait to be "rescued"(for a point or 5 (on the back end of course)-here's a prediction for '08the lenders come up with a great plan to refi their own mess and still make fee income in the processit's a beautiful thingif there REALLY is concernmake neg am illegal & dont prolong the do-do in the systemflush it nowGET RID OF NEG AM

greg

on

I called hope now and was told I would have to go through my servicer ....Not behind yet so ...sorry we can't help you ...maybe I should just skip a few payments ..you think? what a joke!!!!

Anthony

on

Many posts I have read have a misconception that mortgage lenders are all money hungry, sharks. Reality check, people. I am a branch manager at a fairly small mortgage firm. We take a lot of pride in the great and fair loans we do for people. I make a decent living for myself, wife and child. I don't drive a BMW or Mercedes, and I sometimes wonder how I am going to pay certain bills.

The rate freeze can and will help thousands of families. No one said it was going to "save the market" or help everyone out there. It will help many, including myself. I have a 2 year adjustable rate at 9.5%, and it would most likely adjust to over 10.5%. This freeze will enable us to keep making our payments on time, and many other families too. There are positives and negative with EVERYTHING, but if we do nothing, then nothing will change, and no one will be helped.

Matt Graham

on

I'm sorry, but I just don't think it will be that simple to get your rate frozen. You'd have to fail to qualify conventional, fail for FHA, and STILL has good enough credit for a freeze. Even then don't expect the lender to play ball unless you are upside down. Unless the government is going to ENFORCE something, this is all just a PR campaign. HopeNow is set up to alleviate the burden of loss mitigation departments. The inevitable is being spread out over time. I'd LOVE to be wrong on this

Sharon

on

What will happen to those of us who had to file Chapter 7 or 13 Bankruptcy in order to prevent the Foreclosure from taking place on our Sub-prime mortgaged homes? Will they still give us a re-finance loan?

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